Ben Carlson, Columnist

Bond Bear Markets Aren't Measured in Losses Alone

The real risk to investors is the loss of purchasing power over the long term due to inflation.

February 12, 2018 at 5:08 PM UTC

Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. He is the author of "Organizational Alpha: How to Add Value in Institutional Asset Management."

He's cute — for now.
Photographer: Sean Gallup/Getty Images

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The almost 1 percentage point increase in U.S. Treasury yields save for the 30-year bond is leading many investors to declare the end of the bull market in fixed-income assets and the start of a bear market. In recent weeks, Bridgewater’s Ray Dalio has said that bonds are already in bear territory. “A 1 percent rise in bond yields will produce the largest bear market in bonds that we have seen since 1980 to 1981,” he said.

But how do we know Dalio is right? The trouble with his statement is that there is no agreed-upon definition of a bear market in bonds. The standard description in stocks is a peak-to-trough drawdown of 20 percent or worse. Because U.S. government bonds are fixed-income securities, it would be very rare for them to fall by that much.